Tuesday, December 9, 2008

Keynesian Economics: Socialism Lite

According to an article in the December 8, 2008 issue of the New York Times — itself facing some serious financial problems — Russia's leaders are seizing the opportunity offered by the current economic crisis to re-impose socialist central planning and control on the economy. ("Kremlin Rules: In Hard Times, Russia Tries to Reclaim Industries") Meanwhile, back in the United States, presumed capitalist capital of the world, Congress and the White House are debating not whether to impose central planning, but how far to extend increasingly levels of State interference in the economy (e.g., "Congress, White House nears deal on auto bailout").

The move toward socialism in the United States may surprise many people unaware of the similarities between the two presumably opposed systems of capitalism and socialism, but centralized control over the U.S. economy by the State has been a fact of life since the New Deal, just as centralized control over the U.S. economy by private interests was a fact of life for two generations before that. Prior to that, widespread ownership of the means of production (usually in the form of agricultural land) was the rule, with the rapid takeover of the private sector by concentrated economic power forestalled for a time by Abraham Lincoln's 1862 Homestead Act.

Had it not been for the Homestead Act, the rapid industrialization of the North during the Civil War would have completed its hegemony over the economy in a very short time. Had it not been for the opening of the West, the vast federal lands would have remained under the control of wealthy ranchers, and Reconstruction would have maintained iron control over the South permanently. With the vast western lands broken up into small holdings, however, the power of the ranchers was broken at a time when the rising demand for western beef would have given them (as it nearly did) total control over more than half the land in the U.S., while the escape valve of the movement west kept the federal government from imposing absolute control over the South during Reconstruction.

Today, consistent with the dictates of Keynesian economics (General Theory, V.24.ii), there is virtually no small ownership left to compete with the large corporations, the ownership of which is concentrated in less than 1% of the population. Then, with the current financial meltdown (instead of taking the opportunity offered by the crisis to reform the system and open up capital ownership to ordinary people the way Lincoln opened up the opportunity to own land) the federal government is, instead, working feverishly to install and maintain central planning and control over the economy. This is predominantly by means of absolute control over money and credit, but now is moving to imposing direct State control of industry, beginning with the "Big Three" automakers.

Again, this is perfectly consistent with Keynesian economics. Keynes declared in The General Theory of Employment, Interest, and Money (1935) his rather turgid economic tome (composed, in the opinion of this writer, in a panic to undermine the findings of Dr. Harold Moulton in his brilliant, if iconoclastic monograph, The Formation of Capital, 1935), the State should control the "rate of interest" (i.e., return to capital), the rate of investment, and State "cooperation" with industry — to say nothing of working to eliminate small ownership gradually from the economy. To disabuse people of the idea that the level of State control he advocated was socialist, Keynes calmed people's fears first by writing in an obscure a manner as possible, then stating,

In some other respects the foregoing theory is moderately conservative in its implications. For whilst it indicates the vital importance of establishing certain central controls in matters which are now left in the main to individual initiative, there are wide fields of activity which are unaffected. [Keynes doesn't list the "wide fields of activity" left to individual initiative.] The State will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation [i.e., manipulating the tax rate to increase or decrease disposable income], partly by fixing the rate of interest [i.e., by fixing the rate of return to capital], and partly, perhaps [!] in other ways [carefully not specified]. Furthermore, it seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. [i.e., control of the banks will probably not exercise adequate control over new capital formation] I conceive, therefore, that a somewhat comprehensive socialization of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative. [In other words, State control over who can invest and how much — which the communists called "central planning" — will not preclude the imposition of other controls by the State, as seems expedient.] But beyond this no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community. [Of course not — controlling who may own and how they may enjoy how much of the fruits of ownership is to exercise absolute control over the economy and the lives of individual citizens!] It is not the ownership of the instruments of production which it is important for the State to assume. [Ownership is control in all codes of law; Keynes is saying that it isn't necessary to take actual title for the State to own everything.] If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary. [i.e., if the State is able to exercise absolute control over everything, it will have achieved its goal.] Moreover, the necessary measures of socialization can be introduced gradually and without a break in the general traditions of society. [Excepting only the "traditions" involving the natural law rights to life, liberty, property, and capacity to acquire and develop virtue.] (General Theory, V.24.iii)

By actually reading what Keynes wrote and understanding its import, we realize that the end result of the Keynesian economic program is effective State ownership and control of virtually every aspect of human life. This is achieved by first controlling money and credit, and then by extending this control directly to industry and commerce. This is consistent with Lenin's approach to undermining the capitalist system: first debauch the currency, then seize direct control once private interests are too weak to resist. If the rot has spread far enough, the capitalists will even beg for State control — fulfilling Lenin's prediction that the capitalists will be so eager to save themselves from their own folly and still make a profit that they will sell the very rope that will be used to hang them.

There is, nevertheless, time to reverse this trend, or even salvage some semblance of a human system in the event the current movement toward State control succeeds — which it appears very likely to do, as bankers and automakers rush to save themselves at taxpayer expense. A Capital Homestead Act can do for America and the world what Abraham Lincoln did with the Homestead Act of 1862.

More — a Capital Homestead Act would be of permanent benefit and effect a lasting restructuring of the social order. Land is by nature limited, while the amount of new capital investment is, for all intents and purposes, limited only by humanity's need for goods and services. Industrial and commercial hegemony over the economy was only made possible with the closing of the land frontier and the effective end of competition to concentrated economic (and thus political) power. It is time to restore the balance, and that balance can only be restored by opening up democratic access to the means of acquiring and possessing private productive property.

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